Exports excluded from new tax credit norms, clarifies finance ministry
Experts pointed out that the 1% cash payment requirement could lead to cash-flow-linked difficulties
NEW DELHI : Export turnover is exempt from a new rule that prevents businesses from fully meeting their tax liability using tax credits, a finance ministry official clarified on Sunday.
The clarification comes after experts pointed out that the requirement of paying 1% of the total tax outgo in cash by businesses with ₹5 million sales per month could lead to cash-flow-related difficulties for some. It also comes in the wake of traders registering their protest against the rule that is effective from 1 January.
Sale proceeds of items exempt from the goods and services tax (GST) are to be excluded while computing the ₹5 million sales threshold for 1% cash tax payment, said the official.
The government’s idea is to step up GST compliance and nail fake invoice rackets by forcing a part of the payment in cash. Those engaging in providing bogus invoices (providing invoices without supplying goods) choose items with limited value addition so that there is no need for any cash payment of tax and the entire tax liability is met by bogus credits. The 1% cash payment of tax is meant to address this. The rule is expected to apply to 40,000-45,000 tax payers, according to finance ministry estimates.
“This provision is a very smart rule against fraudsters and will not affect genuine business entities or the ease of doing business in any manner," the official mentioned above said. GST authorities had held a nationwide drive against fake invoices from mid-November. This has so far led to the arrest of over 175 people including five chartered accountants and more than 1,800 cases against 8,000 entities, the official said.
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